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Certification Must for Real Estate Agents: MahaRERA

An analysis of MahaRERA’s mandatory certification for real estate agents and associated consumer protection impacts.

Source and Citation: Article from ET Bureau published on Dec 30, 2023 originally titled “Certification Must for Real Estate Agents: MahaRERA”

Analysis of this news for a layman

MahaRERA, the Maharashtra real estate regulatory authority, has made it mandatory for all property brokers and agent representatives operating in the state to obtain certification starting from January 1, 2024. This requirement applies to both new agents seeking registration and existing ones renewing their permits. The move aims to organize the largely unregulated real estate brokering sector in India by ensuring that agents have undergone proper training to assist home buyers responsibly. Over 8,000 brokers have already obtained the required certification.

Operating as a real estate agent without authorization will result in penal action. The real estate sector has witnessed cases of misselling, often due to information disparities between builders and buyers. MahaRERA intends to bridge this gap by professionalizing the advisory channel.

Other Indian states are expected to follow Maharashtra’s lead by introducing similar agent certification requirements, thereby enhancing consumer protection.

Certification Must for Real Estate Agents: MahaRERA

Impact on Retail Investors

For retail property buyers, the potential impacts of mandated certification for real estate agents in Maharashtra are as follows:

Positives:

  • Reduced Misselling Risks: Certification reduces the risk of misselling for home buyers, allowing even first-time purchasers to make decisions more confidently.
  • Rationalized Brokerage Charges: Over time, brokerage charges are expected to become more rational, with uniform fee structures and performance benchmarks across registered agents, replacing ad-hoc practices.

Negatives:

  • Migration of Small Brokers: Additional compliance requirements may encourage small-time brokers to migrate out of formal channels due to their inability to allocate resources for training, potentially leading to the monopoly of large agencies.
  • Limited Prevention of Fraud: Certification alone cannot fully prevent frauds or false commitments. Issues related to integrity need to be addressed by all stakeholders in the real estate transaction ecosystem, including builders and authorities, in addition to agents.

While this move may not materially influence stock prices, it benefits the wider housing market by addressing information asymmetry, which often negatively impacts retail property investors during economic downturns.

Impact on Industries

The MahaRERA agent certification rule has varying impacts across some real estate sector industries:

Real Estate Broking:

  • The consolidation of large national multi-city agencies, such as ANAROCK and Proptiger, is expected as smaller brokers may find it difficult to invest time and money in clearing certification exams.

Construction and Building Materials:

  • Better-trained agents can guide buyers toward quality projects, potentially weeding out developers with poor construction records or delays. This benefits efficient and reputable builders.

Housing Finance:

  • Responsible advice by agents on home loans results in lower EMIs for buyers, increasing affordability and benefiting banks and housing finance companies (HFCs) like HDFC and LIC Housing Finance.

Overall, industry transparency and efficiency are expected to improve with higher accountability standards, although compliance costs may also rise.

Long Term Benefits & Negatives

Potential longer-term gains from MahaRERA’s agent certification decision:

Benefits:

  • Professionalization: The move professionalizes the home buying process, significantly reducing the risk of misselling and bringing practices closer to those in developed nations.
  • Shifted Incentives: Incentives shift from speculative selling to responsible advisory, aligning with home purchasers’ needs and budgets and developing trust.
  • Rationalized Brokerage Charges: Brokerage charges are expected to become more rational, preventing arbitrary pricing variations between agents and geographies. Market-determined, transparent fee structures are likely to emerge based on the value provided by certified experts.

Negatives:

  • Oligopolistic Risks: The compliance costs may drive small standalone agents out of business, leading to the monopoly of large corporate agencies. Safeguards are needed to prevent large agencies from abusing their market dominance in the long term.
  • Ethical Issues: Certification alone cannot address ethical issues. Integrity and conduct codes for real estate transactions are equally important alongside visible skill certification.
  • Staggered Adoption: The success in Maharashtra should serve as a template for other regions. Staggered state-wide adoption is essential to prevent disruptive immediate impacts in other areas.

Overall, the regulatory move introduces expertise barriers that positively disrupt existing broking practices, benefiting consumers. Managing change effectively is key.

Short Term Benefits & Negatives

Likely shorter-term (2023-24) gains from MahaRERA’s agent certification decision:

  • Tackling Information Gaps: The decision quickly addresses information gaps for prospective buyers in complex property decisions, with certified experts providing assistance.
  • Service Quality Enhancement: There is a visible shift toward enhancing service quality by brokers, as training costs are involved. Buyers can expect better project insights and documentation support.
  • Setting a Template: The stage is set for more states to emulate the system, raising industry standards nationally beyond just Maharashtra.

Negatives:

  • Challenges for Smaller Brokers: Smaller brokers in remote areas may require longer timelines to acquire certification through exams conducted by MahaRERA periodically. Temporary but lawful alternatives are needed.
  • Risk of Elite Cartels: Genuine educational requirements could be misused to create elite cartels. Professionals with experience but no formal specialization should also be included.

While the change has just been announced, balancing flexibility for agents not ready yet with firm messaging to implement the reform earnestly is a key priority. Therefore, while largely favorable for buyers, astute change management is required in the early stages before the benefits become fully visible. The focus should be on raising capabilities rather than compliance.

Impact of Mandatory MahaRERA Certification on Indian Real Estate Companies:

Indian Companies Likely to Gain:

  • Real Estate Training Providers:
    • Companies like ACE Equity, National Real Estate School, and The Institute of Estate Agents India will see increased demand for their MahaRERA certification courses.
    • Market Sentiment: Positive, with potential stock price increases due to higher revenue expectations.
  • Organized Real Estate Brokerages:
    • Established players like Century 21 India and RE/MAX India, already adhering to ethical practices, will gain a competitive edge over non-compliant brokers.
    • Market Sentiment: Neutral to positive, as their brand value and market share might solidify.
  • PropTech Companies:
    • Platforms like NoBroker and Housing.com facilitating online property searches and transactions could benefit from increased trust and transparency in the market.
    • Market Sentiment: Positive, as their user base and overall valuation might increase.
  • Real Estate Regulatory Technology (ReTech) Companies:
    • Startups offering technology solutions for compliance management and document verification for MahaRERA will see higher demand from brokers and developers.
    • Market Sentiment: High growth potential, with increased investor interest and potential acquisitions.
  • Large Real Estate Developers:
    • Reputed developers like Oberoi Realty and Godrej Properties, known for following regulations, might attract more buyers due to the increased professionalism in the market.
    • Market Sentiment: Neutral to positive, as their brand image and customer trust might strengthen.

Indian Companies Likely to Lose:

  • Unorganized Real Estate Brokers:
    • Small, independent brokers lacking formal training and certification might face difficulty operating or lose clients due to non-compliance.
    • Market Sentiment: Negative, with potential revenue losses and market share decline.
  • Fraudulent Real Estate Players:
    • The certification requirement could make it harder for fly-by-night operators and scamsters to operate in the market, benefiting genuine companies.
    • Market Sentiment: Positive for the overall sector, as consumer confidence might increase.

Global Companies (Limited Impact):

  • International Real Estate Firms:
    • Companies like CBRE and Savills with established Indian operations might see a slight increase in demand for their professional services due to the requirement for higher standards.
    • Market Sentiment: Neutral, as the impact might be limited to specific segments.

Note: This analysis is based on available information and future outcomes might differ. Always consult with a financial advisor for personalized investment advice.

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